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Tips for Navigating Recent ACA Penalties

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At the tail-end of 2017, we shared the Internal Revenue Service's (IRS) plans for dishing out penalties against employers for failing to comply with the shared responsibility (i.e., "employer mandate") rules of the Affordable Care Act (ACA).

Now, Matt Thomas of the professional employer organization WorkSmart Systems Inc. is sharing tips on how employers can navigate the IRS penalty process under the ACA.


Many large employers have been up in arms about receiving ACA penalty notices over the past few months indicating they failed to offer qualifying health coverage in 2015. The penalties are amounting to thousands, if not millions, of dollars that may be due to reporting errors.

The Employer Shared Responsibility Payment (ESRP) is part of the ACA and is sometimes referred to as the "employer mandate." It applies to employers with an average of 50 or more full-time or full-time equivalent (FTE) employees, and requires the employer to offer employee health insurance that meets ACA standards or be fined by the IRS. In other words: "pay or play."

Many employers recently received a penalty notification and were perplexed not only by the large amount of the proposed penalty, but also the reason for the penalty. If you are one of these employers, and you are reasonably certain that you have met your obligations under the ESRP, you may be correct. It seems that a common error has occurred, at least for the 2015 reporting year.

To give some background, the IRS determines which employers owe a penalty based on information from the employer's Forms 1095-C and 1094-C and employees' income tax returns. Form 1094-C is the employer reconciliation of healthcare reporting forms 1095-C, which are distributed to employees. It appears that Part III (a) has been checked incorrectly in many cases with an indication that the employer did not offer minimum essential coverage to employees when in fact the employer did offer coverage.

If you are an employer currently in this situation, the remedy may be relatively simple. First of all, do not panic. Receiving penalties of large amounts can be scary, but I suggest consulting a trusted adviser with ACA expertise to verify the cause of the notification before taking any action.

If you determine that the proposed penalty was triggered because of a reporting error in Part III (a) of the 1094-C, the following steps should rectify the issue:

  1. Draft a short letter stating that you do not agree with the proposed payment, and indicate the reporting error.
  2. Complete the section of the notification that gives you the option to disagree with the proposed payment.
  3. Print and sign a copy of the 1094-C form with Part III (a) indicating that you did offer minimum essential coverage to employees.
  4. E-fax these items to the number on the first page of the notification.

Please note that there are many legitimate reasons for the ESRP notification and it is important to ascertain the cause before taking steps to remedy.

About the author: Matt Thomas is the President of Indianapolis-based WorkSmart Systems, Inc., which he founded in 1998. He is active with the National Association of Professional Employer Organizations (NAPEO), and has dedicated more than 20 years to the PEO industry dating back to his early career with industry leaders ADP and NovaCare Employee Services.

Posted In: Affordable Care Act (ACA); Internal Revenue Service (IRS)

Want to know more? Read the full article by Matt Thomas at HR Morning

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